EL-ERIAN: Here are 10 things you should be closely watching in the global economy

Mohamed El-Erian. REUTERS/Jason Reed Roller-coaster views about global growth were important contributors to the first quarter's dramatic "V"-shaped stock market performance — from a scare early in the year that weakness in China and elsewhere could tip the US into recession to a more comforting assessment underpinned by friendly central banks and, in the case of the US, strong job creation.

Disappointing growth is also the common element behind numerous improbable developments that have become reality, be they negative central-bank policy rates in Europe and Japan, almost one-third of government debt globally trading at negative yields, or the influence of antiestablishment political movements on both sides of the Atlantic.

Given the economic/financial/political/social implications of this protracted period of low growth, here are the 10 things you need to know right now:

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Global growth will remain modest and uneven

Kieran Doherty/Reuters

Overall, global growth in 2016 will remain modest and quite uneven, in both the advanced and the developing worlds.

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The US will continue to outperform

US growth, while again falling short of potential, will continue to power the advanced economies as the domestic economy outperforms. While Japan will struggle to maintain a 1% annual expansion, Europe will face even uncertainty depending on how politicians deal with the region's refugee crisis, Greek-debt forgiveness, and potential British exit from the European Union.

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Growth in emerging markets will continue to struggle

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Growth in emerging economies will struggle to break free from what in 2015 constituted the lowest annual rate since the 2008-2009 global financial crisis. China is likely to soft-land its economy at 6 to 6.5% growth, from 6.9% last year, while Russia and, especially, Brazil will experience another year of painful contraction.

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Inequality will remain an issue

REUTERS/Jim Young

The benefits of the growth that is produced by the global economy will continue to accrue to a rather narrow segment of society, making the well-off even better off and keeping inequality high on the political agendas of most political parties.

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Central banks will extend their liquidity pedal

REUTERS/Kai Pfaffenbach

The policy response to elusive growth is unlikely to extend much beyond what is already an excessive and prolonged reliance on experimental central-bank policies. Within the central-banking community, look for the Bank of Japan, the European Central Bank, and the People's Bank of China to extend their liquidity pedal-to-the-metal approach, while the Fed will continue to gradually and cautiously ease its stimulus.

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Be careful in assuming that low growth will persist

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Having already persisted for so long, the temptation is to assume that this low growth equilibrium can continue well beyond 2016. Be careful in doing so.

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The strains from this low growth environment are apparent

Already there are visible and mounting strains from both the direct influence of low growth (including the challenge to the well-functioning of economic governance), as well as from its indirect impact (such as attempts by households in Japan to gradually disengage from a financial system that offers them negative nominal bond yields and is increasingly challenged to provide attractive longer-term financial assurance solutions).

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Global growth will tip one of two ways over the next 3 years

Within the next three years, global growth will tip in one of two possible ways as it becomes harder for the global economy to maintain low stable growth and as central banks become less effective in repressing financial volatility. Nothing is predestined, at least for now, as to what comes next. This unusual period of low growth ("the new normal") would either yield to damaging recessions and financial instability or transition to high inclusive growth that also delivers genuine financial stability.

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Politics will decide which way global growth goes

What lies ahead is much less of an engineering issue and much more of a political question. Specifically, the timing and direction of the coming tip is a direct function of the policies that politicians decide to implement in the next few quarters — specifically, whether they can unleash growth through infrastructure investments, tax reform, and higher labor-market participation; better match the willingness and ability to spend; tackle pockets of excessive indebtedness; and improve global policy coordination.

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We don't need a big boost for policy. A small one will do.

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With so much corporate cash sitting on balance sheets, and with exciting innovations on the verge of going macro, the quest for inclusive global growth does not need for politicians to deliver a big policy bang. A small policy bang would suffice.